UK mortgage lenders cut rates in a battle for market share
Making sense of the latest trends in property and economics from around the globe
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The UK's annual rate of inflation dropped sharply to 4.6% in October, down from 6.7% in September, according to official figures out this morning.
There is a lot to like in the report. The sharp drop in the headline rate was in large part due to a reduction in Ofgem’s price cap, reflecting lower wholesale gas prices, but there were positive signs on Core CPI, which dropped to 5.7% from 6.1%, and services prices, which fell to 6.6% from 6.9%. Core CPI has risen at an annualised month-to-month rate of just 2.2% over the last three months.
Bank of England Governor Andrew Bailey and his colleagues will no doubt soon reiterate that there is still plenty of heavy lifting to do, but the data will further solidify the view among investors that interest rates aren't likely to remain as high for as long as the Bank would like us to believe.
"The route to the first Bank Rate cut next spring is now very clear to see," says Samuel Tombs, chief UK economist at Pantheon Macroeconomics.
Near perfect
The UK report shared many themes with the US inflation report, out yesterday, which showed consumer prices were flat month-on-month, while core inflation rose at the slowest rate for two years.
The numbers were 'near perfect', writes the FT's Robert Armstrong. The S&P 500 jumped 1.9% to have its best day since April. The odds of a hike in December dropped from 18% to zero.
"The Fed always wants to see more progress, but it is looking like the inflation battle has rounded the corner," Christopher Rupkey, chief economist at FWDBONDS tells Reuters. "With any luck, the economy will miss a recession and get lower inflation too."
Mortgage rates
UK mortgage rates have been ticking down slowly since late July, but the brighter outlook has prompted some larger lenders to make more meaningful reductions.
Nationwide last week cut some products by 0.38%, then Halifax yesterday said it would cut some of its range by a sizable 0.46%. The best two-year fixed rate products are already below 5%, and colleagues at Knight Frank Finance expect five year fixed rate products to fall to about 4.5% this side of Christmas.
"Inflation is coming down meaningfully and the Bank’s chief economist has said it’s reasonable to expect the first rate cut to arrive next summer," Simon Gammon of Knight Frank Finance tells the Times this morning. “Regardless of whether that happens, the shift in sentiment has helped swap rates to ease, and lenders are eager to pass it on in the form of lower rates. All are doing less business than they would like to be and are eager to catch up where they can.”
Housing ministers
Lee Rowley was crowned Housing Minister in Prime Minister Rishi Sunak’s cabinet reshuffle this week, making him the 16th housing minister in the past ten years.
The revolving door of housing ministers isn't the main reason that housebuilding policy remains so fraught for the Conservatives, but it definitely doesn't help. Whether or not Mr Rowley will have long enough to make a dent in the various housing market policies the party have floated so far remains uncertain, but with Labour currently odds on to win an election likely to take place next year, it looks like a stretch.
“It is extremely challenging to develop coherent long-term strategy if leadership changes so regularly,” Knight Frank head of development consultancy Charlie Hart tells the FT.
In other news...
More than 80 per cent of London buildings are full, and 40 per cent of the vacant office space is found in just 1 per cent of the buildings, according to Landsec (FT), British Land's rejection of Meta stand-in marks an inflection point (FT), and finally, British homeowners in France urge MPs to relax visa rules (Times).